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Financial Services Regulation & Compliance - Insurance April 2018

Central Bank publishes guidance on approval and supervision of special purpose vehicles under Solvency II

On 4 April 2018, the CBI published guidance on the approval and supervision of SPVs under Solvency II (Directive 2009/138/EC). The guidance is intended to assist SPVs by providing further detail of CBI expectations in respect of SPV compliance with requirements under Solvency II. Among other matters, the guidance covers (a) the requirement to seek CBI prior approval for establishment of an SPV, (b) the approval process, (c) mandatory contractual requirements, (d) governance requirements, and (e) supervisory reporting. The guidance also includes a checklist for SPV applications and template Annual Directors Certificates.

Central Bank publishes findings on Solvency II regulatory reporting

On 17 April 2018, the CBI published a "Dear CEO" letter detailing its observations following an analysis of Solvency II regulatory reporting submissions received and its onsite inspections into governance, controls and data quality around regulatory reporting. The purpose of its analysis was to assess whether (re)insurers had established a robust and documented process for Solvency II regulatory returns. The Letter includes a number of examples of good and poor practice observed by the CBI during its onsite inspections. It also details instances in which (re)insurers were found to be non-compliant with Solvency II obligations, including failure to have a supervisory reporting policy in place.

EUROPEAN

EIOPA publishes Oversight Activities Report for 2017

On 19 April 2018, the EIOPA published its latest Oversight Activities Report which summarises its oversight activities in 2017 and outlines its priorities for 2018. The Report highlights, in particular, the new cross-border supervisory cooperation platforms established in 2017 as a notable achievement. EIOPA believes that these platforms will enable risks in relation to the sale of insurance cross-border to be identified and examined, and preventive actions to be agreed, in the most effective and timely manner. Among its priorities for 2018, the Report notes that EIOPA intends to give further attention to supervisory co-operation in relation to cross-border business and to focus on authorisation processes and business models which pose material prudential or conduct risks.

EIOPA publishes Supervisory Convergence Plan for 2018 and 2019

On 23 April 2018, EIOPA published its latest Supervisory Convergence Plan for 2018 and 2019. To further strengthen supervisory convergence in Europe, the Plan identifies three key priority areas for 2018 and 2019: (a) further implementation and specification of the key characteristics of high quality and effective supervision as set out in its Common Supervisory Culture; (b) risks to the internal market and "level playing field" (among other initiatives, EIOPA intends to examine consistency in how technical provisions are calculated including, in particular, for certain lines of non-life business such as decennial liability and medical malpractice); and (c) the supervision of emerging risks (e.g. in relation to IT security and governance and a thematic review of the use of big data in insurance).

EIOPA publishes update on Strategy for Conduct of Business Supervision

On 24 April 2018, EIOPA published an update on its "Strategy towards a comprehensive risk-based and preventive framework for conduct of business supervision" which is designed to enhance supervisory convergence across the EU from a conduct perspective. The update notes that whilst some good progress has been made on conduct supervisory convergence in recent years, a renewed emphasis is necessary, particularly in view of recent developments in the conduct area (e.g. in the Directives on Insurance Distribution and Packaged Retail and Insurance-based Investment Products). The update sets out a number of initiatives which EIOPA intends to pursue in order to further augment its work in this area including the integration of conduct themes into its Supervisory Handbook.

On 17 April 2018, the European Commission published a draft delegated regulation with proposed amendments to the Solvency II Commission Delegated Regulation (EU) 2015/35 (CDR) as regards the calculation of regulatory capital requirements for securitisations and simple, transparent and standardised securitisations held by (re)insurers. The proposed amendments follow on from the EU's adoption of a Regulation ((EU) 2017/402) (STS Regulation) (to apply from 1 January 2019) which establishes new frameworks for securitisation and STS securitisations, and will also amend the Solvency II Directive to take account of these new frameworks. The proposed CDR amendments include alignment of existing definitions with those used in the STS Regulation, adoption of a new calibration for STS securitisations, and transitional measures for existing assets falling within the 'type 1 securitisation' category. Feedback on the proposals is invited until 15 May 2018.

European Commission report on group supervision under Solvency II and transitional period for IORPs

On 5 April 2018, the European Commission published a report on (a) group supervision under Title III of Solvency II, and (b) the transition period for institutions for occupational retirement provision (IORPs) operated by life insurance undertakings. The Report fulfils a Commission obligation under Solvency II to assess and report on the application of group supervision. Among other matters, the Report considers the definition of groups; cooperation/functionality of colleges of supervisors; sub-group supervision; and group internal models. The Commission concludes that, as Solvency II is due for general evaluation in 2020, convergence in group internal model decisions is the only area which requires immediate action and notes this has already been addressed in its legislative proposals concerning the European Supervisory Authorities (published September 2017) which will amend Solvency II to provide EIOPA with enhanced powers in this field. In relation to IORPs, the Commission states that it will reach a decision nearer the end of the existing transition period (end 2022) about any possible extension.

On 6 April 2018, Commission Delegated Regulation (EU) 2018/541 was published in the Official Journal of the EU (OJEU). This delays the application of two Delegated Regulations which supplement the Insurance Distribution Directive (IDD) (Directive 2016/97/EU) in the areas of (a) product oversight and governance requirements, and (b) information requirements and conduct of business rules applicable to the distribution of insurance based investment products. The Delegated Regulations will now apply from the same date as Member States are to apply the IDD (1 October 2018).

Notice of entry into force of EU-US Bilateral Agreement published

On 9 April 2018, a notice was published in the OJEU concerning entry into force of the Bilateral Agreement between the EU and the US on prudential measures regarding insurance and reinsurance. The Notice confirms that the EU and the US have notified each other of the completion of the procedures necessary for the entry into force of the Bilateral Agreement and that, consequently, the Agreement entered into force on 4 April 2018.

On 25 April 2018, Commission Implementing Regulation (EU) 2018/633 was published in the OJEU. This amends Implementing Regulation 2016/1800 which lays down implementing technical standards on the allocation of credit assessments of external credit assessment institutions (ECAIs) to an objective scale of credit quality steps for the purposes of calculation of the Solvency Capital Requirement. The amendments reflect changes to the ECAIs that have been registered or certified since adoption of Implementing Regulation 2016/1800. The amending regulation will enter into force on the twentieth day following its publication (15 May 2018).

EIOPA publishes risk dashboard for fourth quarter of 2017

On 27 April 2018, EIOPA published its risk dashboard for the fourth quarter of 2017. This is EIOPA's quarterly risk assessment based on financial stability and prudential reporting from EU insurance groups and solo undertakings. Key observations include: (a) risk exposures for the insurance sector remained stable during Q4 2017, (b) low interest rates continue to represent a major source of risk, and (c) the impact of natural catastrophes in Q3 2017 has kept insurance risks at a medium level.